Wednesday, June 7, 2006

Where is the US economy heading?

Into the frying pan or the fire – which way should the Fed jump?

Interesting article that indicates a period of stagflation could be the direction the US economy is heading.

Posted by denzil @ 09:47 AM (530 views)
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8 thoughts on “Where is the US economy heading?

  • The era of low inflation and low interest rates that has been seen across the developed world for the last decade is not underpinned by the balanced trade and balanced budgets necessary to achieve lasting stability.

    The concept of inflation targetting as an economic tool looks likely to come under increasing strain, until one by one, the developed nations abandon it and let inflation take off.

    There is scope for bitter divisions within the eurozone over this – the ‘club med’ countries have relatively little to lose from high inflation (and in Italy’s case, quite a lot to gain), whereas Germany, The Benelux countries, Austria and (to a lesser extent) France – will be very anxious to keep inflation under control.

    The USA, as always, will pursue it’s own national self interest without a moment’s concern for what happens elsewhere as a result. After a little agonising, I think they will print their way out of trouble and let inflation rip.

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  • Could somebody explain the below quote from thisarticle for me?

    Though the (US) economy is much less oil-dependent than it was, oil prices are clearly taking some toll.

    P.S. I agree Tom, they will surely roll the printing presses before allowing (possibly) the greatest deppression of all time to unfold.

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  • >>Could somebody explain the below quote from thisarticle for me?
    >>Though the (US) economy is much less oil-dependent than it was, oil prices are clearly taking some toll.

    Interesting question and a do recall reading something a little while back that stated that for each dollar of US GDP the US only uses 50% of the energy (oil ralated) that it did during the oil crisis of the 70’s. Still fairly dependent in my book.
    I’ll see if I can find the link.

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  • I agree that inflation control may no longer be the focus in the future. In that case whats the best way to inflation proof cash savings that are interded as a deposit on property?

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  • Gregski – look up the index linked products on the National Savings & Investments web site, or if you’ve got quite a large lump to invest, buy into short dated index linked gilts – like the 2.5% 2011.

    These are dead boring and poor yielding, but very safe!

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  • “They will print their way out of trouble and let inflation rip.”
    UT, in the 70’s yes, in the 80’s yes, in the 90’s yes, now no. The $ is increasingly distrusted as foreign currency reserve diversification and gold prices show (not to mention the world’s willingness to curtail US unilateralism). The US may print, but the $ will be slaughtered if they do.

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  • Thanks UT – good advice for many I suspect.

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  • Exactly, Harold, that’s why I think they will agonise first. But print they will.

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